“This has been a very long roller coaster ride,” City Manager Donna Landeros said in an e-mail message. “It is thrilling to see all of the pieces come together better than we ever imagined. The City’s conservative financial policies made it happen! Now let’s get to work and get it built!”
The following memo providing details of the bonding process was sent to the City Council by the city's Finance Dept. Thursday evening:
“The pricing and sale of the 2009 Civic Center Lease Revenue Bonds has been substantially completed. The past few days have been extremely intense as the complexity of our deal along with a rapidly changing financing market caused us more than a few uncomfortable moments. Several large issues were pulled from the market yesterday as some of the planned bond issuances faced increases upwards of 25 basis points (0.25%). This is due to the fact that most bond issues are indexed to the 30 Year Treasury Bond, which after falling for 3 straight months, reversed course and started heading upward.
“We had planned on issuing Build American Bonds (BABS) in order to take advantage of the Federal Subsidy associated with that program. BABS are issued as taxable bonds, with the Federal Government rebating the City 35% of the interest costs. Since BABS investors are typically different than the non-BABS investors, had we not generated enough buyers of our bonds, it would have necessitated our issuing tax-exempt bonds, costing the City approximately 35 basis points (0.35%). By the end of the day we had placed approximately 50% of the bonds, with the knowledge that we had an interested buyer who was likely to pick up a substantial portion of the bonds the following morning.
“This morning began with the news that the 30 year treasury was heading higher again, followed by a phone call from our underwriter who informed us that the buyer wanted to have a phone conference with the City before committing to the deal. We completed the phone conference and within an hour the buyer agreed to purchase $10 million of our bonds. After that, the 30 Year Treasury began to finally weaken, and things fell into place. The rest of the bonds were sold, and we will receive an interest rate of approximately 4.97%. This is the lowest yield the City has ever received on any bond issuance, which is all the more remarkable considering we were unable to insure the bonds due to the collapse of the bond insurers last year. This interest rate is 100 basis points lower than the interest rate we had budgeted. Obviously, that will result in a significant savings for the City. Due to the complexity of the transaction we have not yet been given final numbers and final debt service schedules, but at this point it looks to be a savings of approximately $14.6 million over the life of the issuance.”